CBDT Notifies Form 173A: FIIs and BIS Must Report G-Sec Holdings to Claim Tax Exemption

The Central Board of Direct Taxes has notified Form No. 173A, the statement that foreign institutional investors and the Bank for International Settlements must furnish to claim the tax exemption on interest and capital gains from Indian government securities. Notification No. 137/2026 (G.S.R. 901(E), F. No. 370142/35/2026-TPL), dated 19 October 2026, makes the Income-tax (Seventh Amendment) Rules, 2026, which insert rule 281A and Form 173A into the Income-tax Rules, 2026. The rules came into force on publication in the Official Gazette.

The form is the missing piece of the exemption that has applied to income arising on or after 1 April 2026. Until now the exemption existed in the statute while the reporting condition attached to it had no prescribed form. Custodians, FPI compliance teams and the tax advisers who prepare returns for foreign investors now know exactly what has to be reported, security by security, for each tax year.

Entries 13D and 13E of Schedule IV: the exemption behind Form 173A

The exemption was introduced by the Income-tax (Amendment) Ordinance, 2026, promulgated on 5 June 2026 with effect from 1 April 2026. It inserted serial numbers 13D and 13E in the exemption table of Schedule IV to the Income-tax Act, 2025. Entry 13D covers a foreign institutional investor, which takes its meaning from section 210(6)(a) of the Act. Entry 13E covers the Bank for International Settlements, the Basel-based institution owned by central banks. Both entries exempt interest on government securities and capital gains on their sale, exchange or transfer, and both make the exemption subject to furnishing prescribed information. "Government security" has the meaning in section 2(f) of the Government Securities Act, 2006.

The same two entries appear in clause 4 of the Taxation and Other Laws (Amendment) Bill, 2026 (Bill No. 150 of 2026), introduced in the Lok Sabha with a Statement of Objects dated 31 July 2026. The Bill's memorandum on delegated legislation records that the Board may prescribe the form and manner of the information for 13D and 13E. That power has now been used. The Bill also adds entry 13F for foreign diamond-mining companies and connected entities selling rough diamonds in a notified special zone, effective 1 October 2026, which is a separate exemption with its own information condition.

The money involved is not small. The PIB research note of 6 June 2026 on reforms to expand foreign participation in G-Secs put FPI holdings at ₹3,75,171 crore as on 12 May 2026, of which ₹3,21,080 crore sat in the Fully Accessible Route and ₹54,091 crore in the General Route. Before the Ordinance, the same note records, FPIs paid tax at 20% on G-Sec interest, 30% on short-term capital gains and 12.5% on long-term capital gains.

What rule 281A requires

Rule 281A, inserted after rule 281 and titled "Information to be furnished under Schedule IV (Table: Sl. Nos. 13D and 13E)", states that an assessee claiming either exemption shall furnish the information in Form No. 173A. Form 173A itself sits after Form 173 in the Rules. The form is to be signed by the principal officer of the investor, who declares that the information is true and in line with Schedule IV.

Part A of Form 173A: identity of the claimant

Part A has nine items: name, country of residence, address, PAN, tax identification number in the country of residence, SEBI registration number as FPI or FII, the tax year for which the exemption is claimed, email and contact number with country code. The notes require the full name and a complete address, including country or specified territory, building, street, PIN or ZIP code, locality, district and state. The tax identification number and the SEBI registration number are optional for the Bank for International Settlements.

PAN is a field, not an optional one, for FIIs. An FPI that has been investing in G-Secs without a PAN, or with a PAN whose address and status do not match its SEBI registration, should fix that before the first Form 173A is due.

Part B of Form 173A: ISIN-level reporting

Part B is where the work lies. For each government security, the claimant reports:

• the ISIN, the type of security (Treasury Bill, fixed rate bond, floating rate bond, State Development Loan or other) and its tenor;
• the total value of the security held on 1 April and on 31 March of the tax year;
• the value of the security purchased during the year and the sale consideration of the security sold during the year;
• the gross interest received or accrued during the tax year; and
• the capital gains earned during the tax year.

The block repeats for as many securities as the investor held. All amounts are in rupees unless the form says otherwise. For an active FPI holding dozens of ISINs across T-Bills, dated securities and SDLs, this is effectively a full annual roll-forward of the G-Sec book, reconciled from opening holding through purchases and sales to closing holding, with interest and gains separated for each line.

That roll-forward has to match what the custodian and the depository record. Interest "received or accrued" is reported gross, so accrued interest at 31 March on a coupon not yet paid belongs in the year's figure. Capital gains are to be reported for each security even though they are exempt, which means the cost and sale records used for the computation have to be preserved.

Points the notification leaves open

Notification No. 137/2026 does not set a due date for Form 173A, nor does it say whether the form is filed electronically on the income-tax portal or in some other manner. It is also silent on how the information interacts with the return of income, and on what happens to the exemption for Tax Year 2026-27 if the form is filed late. The form's design, with a single tax year field and 1 April and 31 March valuation points, indicates an annual statement for each tax year. Until a procedure or portal utility settles these points, FPIs and their custodians should track the income-tax portal for the filing mechanism.

The exemption is limited to the two classes named in the entries. As the Business Standard report on Form 173A of 20 October 2026 notes, it is not available to ordinary investors, so a resident holder of G-Secs reports interest and gains under the normal provisions.

The first practical date for most FPIs is the close of Tax Year 2026-27 on 31 March 2027, when the closing values and the full year's interest and gains in Part B can be computed. Investors who acquired or sold G-Secs from 1 April 2026 onwards should already be keeping ISIN-wise records in the Form 173A format, so that the statement can be filed as soon as the due date and mode are notified.

Official source: View the official source document